Network Analysis of Uniswap: Centralization and Fragility in the Decentralized Exchange Market

The Uniswap is a Decentralized Exchange (DEX) protocol that facilitates automatic token exchange without the need for traditional order books. Every pair of tokens forms a liquidity pool on Uniswap, and each token can be paired with any other token to create liquidity pools. This characteristic motivates us to employ a complex network approach to analyze the features of the Uniswap market. This research presents a comprehensive analysis of the Uniswap network using complex network methods. The network on October 31, 2023, is built to observe its recent features, showcasing both scale-free and core-periphery properties. By employing node and edge-betweenness metrics, we detect the most important tokens and liquidity pools. Additionally, we construct daily networks spanning from the beginning of Uniswap V2 on May 5, 2020, until October 31, 2023, and our findings demonstrate that the network becomes increasingly fragile over time. Furthermore, we conduct a robustness analysis by simulating the deletion of nodes to estimate the impact of some extreme events such as the Terra collapse. The results indicate that the Uniswap network exhibits robustness, yet it is notably fragile when deleting tokens with high betweenness centrality. This finding highlights that, despite being a decentralized exchange, Uniswap exhibits significant centralization tendencies in terms of token network connectivity and the distribution of TVL across nodes (tokens) and edges (liquidity pools).